PPI DEADLINE UPDATE. Julia Cooper, Independent Chair, Alliance of Claims Companies

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1 PPI DEADLINE UPDATE The Alliance of Claims Companies (ACC) was established to provide a collective viewpoint to the Carol Brady review in 2015 and is now the biggest representative voice of the financial claims management industry. Julia Cooper, Independent Chair, Alliance of Claims Companies When we formed, the threat to our industry was threefold the Carol Brady Review into future regulation, the proposed time bar and associated Plevin rules, and the potential of the introduction of a fee cap. We met with Carol Brady during her work and we have seen her recommend transition to the Financial Conduct Authority (FCA) in terms of regulation, and work for that has started within the FCA. We engaged with the transition team to ensure the best outcome for the industry as this moved forward though it has to be said this isn t a process in which the FCA are showing any appetite for a speedy conclusion, and their transition team has now been disbanded. We still await the MoJ s decision in regard to a fee cap, but we now know the FCA s thinking in relation to the time bar and Plevin and it is therefore vital that our members, which currently represent around half of all current claims volume in the market consider carefully the FCA s announcement on the PPI deadline as well its guidance on Plevin cases; what it means for members and their processes, and the impact on their previous and future clients. It is clear that our members will need to come together to decide upon a coherent and timely strategy in response to this announcement, which may result in a judicial review of the FCA s policy announcement (PS17/3). What is clear is that we do not feel that a time bar is in the best interests of consumers, and does not allow the greatest opportunity for them to seek access to justice. It is for that reason that we in the ACC will reserve the right to take whatever action is necessary to safeguard consumers. As I alluded to, it is likely that the fee cap announcement will follow shortly, which may also prompt the ACC to gather a collective response and we await the details of that in due course. Since there is a lot to digest, we are delighted to be working alongside Scott Robert to produce this practical guide for members and potential members on the operational impact of the deadline and how to take their Plevin cases forward. If you wish to know more about the work of the ACC then do visit our website or please drop me (julia.cooper@allianceofclaimscompanies.co.uk) or Simon Evans our Chief Executive an (simon.evans@allianceofclaimscompanies.co.uk), as we are here to represent the industry and would welcome new members to help us drive forward our aim of aiding consumer confidence in claims management companies.

2 Payment protection insurance complaints: feedback on CP16/20 and final rules and guidance The Financial Conduct Authority ( FCA ) have now released their final rules and guidance on two consultation papers concerning imposing a deadline on Payment Protection Insurance ( PPI ) (and associated) claims and claims concerning unfair commission. Scott Robert, FinTech, Regulatory Risk, Compliance and Strategy experts Payment Protection Insurance (and associated) claims deadline Now the Financial Conduct Authority ( FCA ) have confirmed the date of the deadline will be 29th August 2019, new and former PPI claims can only be submitted up until this date. Claims Management Companies ( CMC ) will have to ensure that if they submit a claim on behalf of a consumer that they must do so before this time period. The announcement of the deadline may mean that firms decide to increase the amount of marketing undertaken, PPI (and associated) claims deadline or make reference to the deadline in their marketing communications. CMCs should ensure that all of their financial promotions are reviewed against the Conduct of Authorised Persons Rules 2014 and specifically check that they are clear, transparent, fair and not misleading, as well as reviewing compliance against the relevant advertising Code of Practice. We anticipate an update in regard to the FCA s policy statement to appear on the Claims Management Regulator s ( CMR ) website, with specific emphasis on the deadline date; there is also likely to be something issued by the Advertising Standards Authority ( ASA ) at a later stage. It is important to bear in mind that high pressure tactics using the deadline date are still prohibited and cannot be adopted by any means, including: By way of telephone; Through any other form of direct marketing; On websites; In client packs. The FCA have also commented on the fact that customers are not obliged, nor do they need to go through a CMC to re-claim any PPI; it is important to maintain the current guidance in respect of informing any prospective or former clients that they can indeed make a claim themselves directly to the lender. The FCA are implementing a high-profile consumer communications campaign, including requiring lenders to inform clients who have had a rejected PPI claim, but are eligible to compensation due to an unfair relationship. Firms must also give consideration to data consents when attempting to re-contact consumers who they think have an additional claim or a claim in respect of unfair commissions (please see the General Data Protection Regulation ( GDPR ) section below for further information). Even if a consumer has previously held a contract with the CMC, there are two consents to consider. The first, known as data processing consent, is concerned with whether a firm still has the right to hold and process the consumer s personal data for the purposes of marketing.

3 The second is concerned with the Privacy and Electronic Communications (EC Directive) Regulations 2003 ( PECR ), and focuses on the consent required to contact the consumer by various means including where they are registered with the Telephone Preference Register ( TPS register ) by , by SMS and by way of automated voice calls. It is therefore advisable for CMCs to check their general data consents, and before contacting any consumer by phone to check the number against the TPS register, and against internal do not contact lists. The CMR have recently argued that by registering on the TPS after consent was given to a firm they have essentially withdrawn their consent. There are no rules in respect of how long consent lasts although the CMR have previously adopted historic guidance from the Information Commissioner s Office ( ICO ) which advised that consumers should not be contacted if consent is over six months old. In practice, the duration of a consumer s consent is entirely dependent on what the consumer intended when they gave the consent, and whether action has been taken subsequent to that consent to revoke it. The wording of a firm s own consents should be closely examined to understand the likely duration of consent for their own clients. In addition to the above, from April 2017 the ICO will have the power to hold Directors directly responsible for any breach by their firm of PECR. In addition to the above, on 25th May 2018 the GDPR regime will be brought into force which will replace the Data Protection Act This will require significant changes to the management of personal data including the management of consents. Given that firms will likely want to use existing data well into 2019 consideration should be given now to GDPR, and required changes applied to how consents are obtained, including the wording of those consents, together with making the required changes to data processing activities. Further information is provided at the end of this guidance note. The majority of the narrative about the deadline does not reveal anything further than the initial consultations, but please contact Scott Robert if you do have any questions. Our team will be contacting existing clients next week to discuss potential changes required to business models. Claims for unfair commission-plevin v Paragon Personal Finance Ltd ( Plevin ) The final rules and guidance in respect of Plevin complaints are much more comprehensive. We have provided a summary of these and what this could mean for CMCs. The rules and guidance reiterate the content of consultation in respect of who is able to claim. There is a useful infographic¹ which has been published by the FCA in respect of the release of the policy statement. It goes into further detail of how redress for these cases should be calculated, what should be included, and how consumers will know if they may be affected by Plevin. The New Rules The rules make clear that to be a valid complaint the tipping point for having a legitimate Plevin claim is where commission is over 50% of the total value of the policy. The FCA have confirmed that the failure to disclose commission to consumers was not required by their insurance conduct of business rules (ICOB/ICOBS), so a firm s (i.e. the lender) failure to disclose the commission was not in breach of the FCA s specific rules. A consumer (or CMC) could therefore not submit a complaint solely on this basis. ¹

4 As a result of this, the FCA have confirmed that they do not expect firms to proactively review previously rejected PPI complaints about credit agreements falling under s.140a-b of the Consumer Credit Act 1974 against their new rules and guidance (i.e. Plevin complaints). The FCA have also stated that they would not expect firms to re-open a complaint where a consumer previously complained explicitly about the non-disclosure of commission on their PPI policy and the firm considered this but did not uphold the complaint. So when reviewing previously rejected complaints, CMCs will need to ensure this is checked thoroughly. It is also worth noting that the FCA expect firms to assess new complaints for Plevin considerations even where the complainant does not expressly raise the issue, or provide few details about it, or show little understanding of it. Considering all of the above, CMCs therefore are likely to need to substantiate the commission amount prior to being able to submit a complaint solely based on Plevin. It is not clear at this stage how they could do this but it is worth noting that solicitors will not have the same requirement to do this should their client wish to make a Plevin complaint. The FCA have confirmed that consumers will remain free to go to the courts to make a complaint through legal means. The rules for assessing Plevin complaints will come into force on 29th August Until this time, lenders are still able to respond saying the complaint is on hold awaiting final rules (the same will apply with the Financial Ombudsman Service ( FOS )). Some further considerations on Plevin cases apply: This would not apply to PPI sales made before 2005 or to credit agreements from lenders that did not carry out insurance mediation before 1st April 2014; First charge mortgage PPI claims will not fall under these rules as the activity did not fall under the relevant provision of the Consumer Credit Act, unless it was sold prior to 2004 and does not conclude before April 2007; We anticipate that second charge mortgage PPI claims, where the finance was taken out prior to 21st March 2016, will fall under these rules as secured loans fell under the scope of the Consumer Credit Act prior to this date; If a CMC is taking on a Plevin case it must ensure it has the proper authority to bring a Plevin complaint on behalf of clients and observe appropriate standards. The FCA do not state this specifically but this is effectively required to comply with the Conduct of Authorised Persons Rules Further authority from the client may be required in this regard; All resubmitted complaints will be subject to the fee cap (if and when this comes in) even where the client had previously signed a contract with a CMC on different terms. The FCA expects the proposed fee cap to be expedited and we can only presume discussions in this regard have been held with the Claims Management Regulator; The Definition of a Credit Agreement as detailed by the FCA (and therefore the only kind of agreements that can have a Plevin complaint submitted) is as follows: it is between an individual (the debtor ) and any other person (the creditor ) under which the creditor provides the debtor with credit of any amount; and an order under section 140B of the CCA could be made in relation to it. In summary, orders can be made under section 140B of the CCA in relation to credit agreements except where: the exclusion under section 140A(5) of the CCA applies (this relates to regulated mortgage contracts and regulated home purchase plans); or the agreement was made before 6 April 2007 and became a completed agreement before 6 April Current rules and guidance do not appear to provide any further compliance requirements at this stage. If a CMC is attempting to make a Plevin claim it is important to include a clear, unambiguous explanation around why the client is submitting a claim along with the rationale behind this (i.e. the commission of over 50%). Importantly the existing Conduct of Authorised Persons Rules apply including General Rule 2(b) requiring firms to substantiate and evidence the basis of the claim, and that representations are specific to each claim and are not fraudulent, false or misleading.

5 It may be that the lender discloses that the consumer has paid over 50% in commission in their requirement to write to their consumers, but we believe this is unlikely and the summary below covers the details provided in the FCA statement. Lenders obligations to notify consumers Given that the FCA did not require commission disclosure in their ICOB/ICOBS rules, they have decided it would be inappropriate to require or otherwise expect firms to proactively review, or take other proactive actions in respect of all past PPI policies and sales which fall within the scope of s.140a(b) CCA. However, it has therefore confirmed lenders must write out to consumers who may be affected. We have included below a list of the relevant areas of the FCA statement that cover the requirement for lenders to notify consumers affected by Plevin. However, it is not clear what the exact content must be and there does not appear to be an obligation to include the commission amount. The FCA will add to its finalised package of measures a rule requiring firms that sold PPI to write, to those of their previously rejected mis- selling complainants who are in scope of s.140a CCA, with appropriate messaging about the right of those consumers to complain again in light of Plevin. The FCA anticipate that 1.2m consumers will be in the scope of this mailing. Consumers should be included in the mailing where they: have or had a PPI policy where the credit agreement is in the scope of s.140a and, in respect of this policy, as at 29 August 2017, they had: made a complaint about mis-selling but the firm had rejected this, and either not referred the complaint to FOS referred the matter to it but FOS had rejected it, and/or not previously made a complaint about undisclosed commission that the firm or, where applicable, FOS had previously considered or otherwise indicated in writing that it would consider. The content of letters must include: an explanation that the consumer can make a further complaint, if they wish to, in relation to a failure to disclose commission a reference to the deadline and the identity of the CCA lender (where this is known to the seller or can be identified by them following reasonable steps) reference to the availability of further information about arrangements for making a further complaint on the FCA s PPI website, or by contacting the FCA s PPI contact centre. The Calculation of Redress CMCs should be aware that although they may not want to (or be able to) submit new Plevin complaints, where they have one on hold there is an obligation to clients to ensure that they have been paid the correct amount of redress. The FCA have confirmed that lenders reviewing complaints should presume that the failure to disclose commission gave rise to an unfair relationship under section 140A of the CCA if the anticipated profit share, plus the commission that was known or reasonably foreseeable at the time of the sale, was more than 50% (this figure would include Insurance premium tax) of the total amount paid in respect of the PPI policy. If the case is considered to be unfair the redress must include: the difference between the commission the customer paid (e.g. 70% of the premium) and (the proposed tipping point of) 50% of the premium paid (i.e. 20% of premium in this example); plus the historic interest the customer paid on that portion of the premium (where relevant) (ie the interest paid on the 20%); plus annual simple interest at 8% on the sum of the above.

6 Other points of note: Sums rebated to a consumer when, for example, they cancelled a single premium PPI policy early, can be partly included in, and so will reduce, any redress due under an additional or associated unfair commissions claim. The FCA have given examples of calculations in Appendix 2 of their paper and we would suggest reviewing these to provide an idea of how lenders should be calculation redress for different elements of a claim in the 2 stage process outlines by the FCA. Profit Share The FCA define profit share as Arrangements (includng contractuals) that firms have to potentially receive back some of the amount paid in relation to a PPI policy which had initially gone to the insurer. For example, such arrangements might include amounts paid to cover potential claims on policies, but which remain unspent after a fixed period, for example because actual claims did not exceed certain levels. They have decided that the disclosure of profit share would generally have been likely to impact the consumer s thinking alongside any commission (or, in some cases, a profit share alone). So the FCA are including it in the 50% tipping point on the basis it would run with the grain of Plevin and the fairer to the consumer. GDPR Further to the data consent considerations referred to above CMCs must consider the GDPR s stricter interpretation of consent. The consumer will need to have consented to the specific product the CMC is contacting them about and it is likely to need to have specific consent for a Plevin complaint. Without further comment, guidance or rules from the CMR we do not yet know exactly what the Regulator will expect of CMCs with regard to GDPR, but as and when the CMR do publish guidance we will provide further analysis. However the ICO are currently conducting a consultation on GDPR, the results of which will be communicated as soon as these are available. Importantly firms should act now, on the basis of the content of the GDPR, to begin reviewing their business. Awaiting finalised guidance from Regulators is likely to mean that it has been left too late. Preparation for the GDPR implementation is key to securing that customer data can be used in expanding a firm s service offering and we are currently working with firms that are gearing up for the future of the industry. Scott Robert will be releasing briefings regularly on how CMCs will need to prepare for the implementation of GDPR and the future of claims management. You can subscribe to our mailing list by ing enquiries@ scottrobert.co.uk with your details. For Further Information If there is anything that you would like to discuss further, please let one of the team at Scott Robert know by calling or ing enquiries@scottrobert.co.uk and we will be happy to talk with you.